Maudlin said the problem goes far beyond GSEs Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE). He also predicted that “we will have to deal with the aftermath of a rather large number of bank failures over the next year, which is likely to overwhelm the ability of the FDIC to insure your bank deposits.”

Later that day, Reuters reported that small Kansas bank Columbian Bank and Trust Company had become the ninth U.S. bank to fail this year as the weakening economy and falling home prices take thei toll on financial institutions…

This from Reuters:

The FDIC said Columbian Bank and Trust of Topeka, Kansas, had $752 million in assets, $622 million in deposits, and nine branches.

The failure is expected to cost the FDIC deposit insurance fund an estimated $60 million.

The FDIC oversees an industry-funded reserve used to insure up to $100,000 per account and $250,000 per individual retirement account at insured banks.

The biggest bank failure this year was IndyMac, seized by regulators on July 11. IndyMac had $32 billion in assets and $19 billion in deposits as of March. It was the third-largest bank insolvency in U.S. history.

The FDIC said that as of June 30 Columbian Bank had about $46 million in uninsured deposits held in about 610 accounts that potentially exceeded insurance limits.

The failed bank also had about $268 million in brokered deposits that are not part of Friday’s transaction. The FDIC said it would pay the brokers directly for the amount of their insured funds.

The FDIC has a list of problem banks that its examiners closely monitor. The regulator does not name institutions on the list, but at the end of the first quarter 90 were on it.

How many more U.S. banks will fail this year? John Maudlin asked banking expert Chris Whalen, managing director of a service called Institutional Risk Analytics.

This from John:

Chris says he expects 100 banks to fail between now and July of 2009. Most of them will be small, but there will be a few large banks. The total assets of those banks he estimates to be $850 billion (not a typo!). Those are the assets the FDIC is going to have to cover when they take over the banks.

Take Washington Mutual as an example. There are problems there. Their debt now trades at 20%, which is worse than junk. There is no way they could issue preferred stock to recapitalize their business. And they are going to need more capital, as they have writedowns in their future due to the slowing of the economy. Any common issue would have to seriously dilute existing shareholders almost to the point of nothing. There are circumstances in which they can survive, but it would take a remarkable recovery for the US economy, which is not likely. Maybe management can pull a rabbit out of the hat, but it will need some strong magic to get the capital they need at a cost they can live with.

The FDIC has about $50 billion. These reserves have been built up over the years from deposit insurance paid by banks that are part of the program. They are going to need an estimated $20 billion just to cover the failure of Indy Mac. The FDIC will have to cover only a small percentage of the $850 billion, as some of those assets will surely be good. But if they have to cover 10%, then the FDIC would need another $50 billion. Does that sound like a lot? Chris thinks a more conservative number for planning purposes would be 20-25% potential losses, and you hope it does not get there.